Industry warnings that a severe El Niño could shrink crude palm oil (CPO) output by up to 5 million tonnes are sharpening supply-side concerns for buyers and traders, even as current market data points to ample near-term stocks.
The alert, reported by Indonesian media, comes as the El Niño episode (ONI +1.4) continues to dry key growing regions, including Sarawak and Kalimantan. The potential production loss would be significant against Malaysia’s July CPO output of 1,792,979 tonnes, which rose 9.4% month-on-month. A 5-million-tonne shortfall would represent a major swing in global supply, likely tightening availability and supporting prices over the medium term.
B50 program under scrutiny
The warning has also put Indonesia’s B50 biodiesel blending mandate in the spotlight. Higher blending rates increase domestic palm oil consumption, which could reduce exportable surplus if production falters. With Brent crude near $85 per barrel, weak crude prices already pressure biodiesel economics, and a supply shortfall could amplify competition between food, fuel, and export demand.
Traders are now weighing the near-term bearish signals—such as Malaysia’s July stocks building 7.2% month-on-month to 1,429,316 tonnes, and total stockpiles up 3.32% to 2.63 million tonnes—against the longer-term risk of El Niño-driven production losses. The market’s five-session rally to resistance has stalled, with the Malaysian benchmark easing about 1.0% to $1,150 per tonne (RM 4,647).
Market outlook
Our model outlook suggests CPO is consolidating near $1,152 after the recent run-up. While the wide discount to soyoil, Indonesia’s B50 mandate, and the El Niño risk premium remain supportive, overbought technicals and peak production season argue for a pullback in the next seven days. The published path points to a 0.4% decline over that period.
For buyers, the key question is whether current ample stocks will be enough to buffer against a potential El Niño-driven output shock. The industry warning underscores that supply risks are building, even as today’s data show comfortable inventories. Traders will be watching weather patterns and policy decisions in Jakarta closely.